Keith N. Hylton


Why are poor inner cities underserved by financial institutions, and
why is it so difficult to find a solution to this problem? Explanations of the
lending shortfall problem range between theories based on discrimination
to the view that the lending market is working flawlessly. Drawing largely
on the economic development literature, I elaborate an alternative
explanation here. The asymmetric information theory I offer yields the
prediction that urban minority communities will be underserved by
financial institutions even in the absence of discriminatory intent.

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